How bad will it get?

Unemployment on the rise, spurring uncertainty

WASHINGTON (CBS.MW) -- We've seen the headlines for a year now: As profits dry up and the stock market fizzles, corporations lay off more and more workers each week.

Heading into the Labor Day weekend, many workers wonder if the traditional end-of-summer holiday will also mark the end of an eight-year run of good times in the labor market. A fresh reminder of the frequency of tech-sector layoffs came as recently as Friday afternoon, when chip-maker Lam Research announced a restructuring that would result in cutting the staff 10 percent. See full story.

Americans wonder, naturally, if they'll have to sacrifice their jobs to pay for the mistakes made by clueless investors, greedy bosses and distant central bankers.

Their leaders are keeping their fingers crossed too. "I'm deeply worried about the working families all across the country," President Bush said earlier this week.

After hitting 7.8 percent in 1992, the unemployment rate steadily dropped to a 30-year low of 3.9 percent in November 2000. Since then, it has inched back up to 4.5 percent.

For most workers of this generation, that's a very low rate. But it's the direction not the level that's disturbing: Nearly three-quarters of a million Americans have joined the ranks of the unemployed so far this year.

How many more will join those 6.4 million idled workers? How high will the unemployment rate go? How bad will it get?

"If all these layoff announcements get translated into actual layoffs, the jobless rate could go to 5.5 percent," said Irwin Kellner, chief economist for CBS.MarketWatch.com and the Weller professor of economics at Hofstra University.

Kellner is quick to add that he doesn't expect companies to lay off all those workers. Some of the targeted workers will find a new job and quit before they get a pink slip. Others will retire. Some of the cuts will take place in foreign countries.

Kellner and most other economists believe the jobless rate will barely rise over the next year or so because they are persuaded that we've seen the worst of the economic downturn. See Kellner's column on why he's so upbeat. The jobless rate will probably peak at about 5 percent before the end of the year and will average about 4.8 percent in 2002, according to the consensus. Typically, unemployment continues to rise for a few months after the trough of the downturn is reached. See the history of the unemployment rate.

The monthly jobs figures will be the highlight of a very busy economic calendar in the coming week. Other important indicators include the manufacturing survey from the National Association of Purchasing Management and the sales reports from automakers and retail chain stores. See our Economic Calendar and Forecast.

Economists surveyed by CBS.MarketWatch.com think the jobless rate jumped to 4.6 percent in August while another 38,000 jobs were eliminated after losses of 42,000 in July. The figures will be released on Friday at 8:30 a.m.

"There are a few tentative signs that conditions might be stabilizing," said Stephen Slifer, chief economist at Lehman Brothers. Slifer anticipates another "lousy" month in the labor market, even though he's forecasting payrolls gains of 15,000 for the August.

The best reason for optimism on the hiring front is that the weekly jobless claims seem to have settled into a level just under 400,000, far below the 500,000 level that was common in the 1990-91 recession.

"The latest hard news on the labor market is not quite so bad," said Ian Shepherdson, chief U.S. economist for High Frequency Economics. "The number of people being laid off is no longer rising."

Another economist is more pessimistic. "The present round of economically driven job cuts is continuing," said Peter Buchanan, economist for CIBC WorldMarkets. He thinks payrolls fell by 85,000 in August, with huge job losses in both services and manufacturing.

The job cuts are "spreading beyond manufacturing," Buchanan said. In the past six months, only 46.6 percent of 353 industries have added workers. In manufacturing, it's 21 percent of 136 industries.

The wide dispersion of job weakness offers "little evidence of any sustained improvement in employment growth this year," Slifer said.

"Working families remain optimistic and hopeful in many ways, but they are very concerned about what's happening to them on the job," said John Sweeney, president of the AFL-CIO in his Labor Day message. "They feel the threat of renewed layoffs."

Manufacturers, who were the first to feel the pain, say the job losses may have peaked. In the past year, manufacturing employment has fallen by 857,000 workers.

"We are near a turning point," said Jerry Jasinowski, president of the National Association of Manufacturers in his Labor Day statement. He said employment would stabilize by the end of the year and improve next year.

The NAPM index, to be released on Tuesday at 10 a.m., could show that the manufacturing sector is set to grow again. The index is expected to rise to 43.9 percent in August from 43.6 percent in July. Readings under 50 show contraction in output, so an increase to 43.9 percent would only show a smaller pace of decline.

The regional Chicago purchasing managers index rose unexpectedly to 43.5 in August after sinking to 38.0 in July.

The NAPM hit a low of 41.2 percent in January.

"We expect to see a recovery in manufacturing beginning in the fourth quarter," Jasinowski said, but he's still calling for a weaker dollar and a new trade deal to boost exports.

"The recovery will come primarily from consumer demand," Jasinowski said.

But the loss of nearly a million high-paying manufacturing jobs is cutting into consumer confidence and incomes.

"If we see continuing increases in the unemployment rate, we'll see an erosion in consumer confidence," said Tom Palley, an economist at the AFL-CIO.

And the downturn is cutting into workers' pay. "We were heading in the right direction," Palley said. Real hourly wages are just now returning to 1980 levels, he said. "An entire generation of workers has gone without a pay raise."

The slump has cut workers' earnings in many states, according to a survey conducted by the liberal Economic Policy Institute. Workers in Indiana and Alabama have been hit the hardest by job losses and pay cuts, the survey said.

Surprisingly, overall manufacturing employment or wages have not hit workers in California, Massachusetts and Texas, the heart of the high-tech industry.

The job losses in manufacturing have been most severe in Mississippi, Indiana, Michigan and Tennessee, the survey said.

Workers hold their comrades' fate in their hands. If consumers (who are workers in their other role) keep spending, retailers will have to order more goods from manufacturers to replace depleted stocks. But if consumers pull back because they fear losing their job or if their debt level grows too high, the weakness could spread throughout the economy.

Autoworkers could face more layoffs if sales don't pick up. The automakers are expected to report annualized sales of about 16.2 million in August, down from July's 16.3 million. Auto companies are eliminating many of the unprofitable discounts that lured buyers into showrooms earlier in the year.

On Thursday, retail chain stores will report on their August sales. It'll be the first test of how effective the tax cut has been in boosting consumer demand.

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